Housing market risks in the wake of the pandemic

Key takeaways

• House prices rose strongly in advanced economies during the pandemic, breaking with typical post-recession patterns. These developments support domestic demand in the short term but carry risks to the outlook if they reverse.
• Rapid economic recovery, fiscal support and high saving rates amid negative real interest rates explain part of the strong housing demand. Pandemic-induced demand for space, structural supply constraints and increased demand from investors provide additional support for house prices.
• The monetary policy response to inflationary pressures will be a relevant factor when assessing housing market risks. Moderate increases in interest rates could help forestall speculative demand.